The Federal Reserve System

The Federal Reserve (the Fed) System in the United States is a system of federal overseeing agencies, committees, and banks. The system was created in 1913, and its original purpose was for the Fed to be the lender of last resort for banks that needed financial assistance. This is still an important function of the Fed. For example, when our stock markets decline considerably or our banks face bankruptcies, the Fed can intervene by making more than the usual amounts of funds available for banks. This allows for more borrowing and provides confidence to investors that the market dip will be short-lasting.

The Fed Board and the FOMC

The Federal Reserve Board of Governors is in charge of the United States Federal Reserve system. The board consists of seven “governors.” These governors, formerly chaired by the well-known economists Alan Greenspan, and Ben Bernanke, and currently lead by its first female chairperson, Janet Yellen, are appointed by the United States President and approved by the Senate for a period of 14 years. One new member gets appointed every two years. For an up-to-date list of all Federal Reserve Board members, please click HERE.

The Federal Open Market Committee (FOMC) is the twelve member committee in charge of monetary policy decisions in the United States . It consists of the seven board governors, as well as four rotating central bank presidents, plus the president of the central bank of New York. For more information about the FOMC, please click HERE.

Three committees advise the Federal Reserve Board: the Consumer Advisory Council, the Federal Advisory Council, and the Thrift Institutions Advisory Council. For information about these advisory committees, please click HERE.

The Federal Reserve Board, in conjunction with the Federal Open Market Committee, acts independently from Congress and the White House. The chairperson testifies before Congress, but decisions do not have to be approved by politicians.

To learn more about the Federal Reserve System, you can visit the Federal Reserve System website at http://www.federalreserve.gov .

The United States Central Banks

The United States banking system includes 12 Federal Reserve central banks and 25 branch banks. For a listing and map of these federal banks, please click HERE. The Federal Reserve oversees thousands of commercial banks, savings banks, and other financial institution in the United States.

Economists at the central banks are responsible for providing reserves to member banks, supervising member banks, clearing checks and gathering statistics, and doing research to help governments and businesses in their economic decision-making.

The European Central Bank

Next to the central banks of the United States and the central bank of China, the European Central Bank (ECB) is one of the most powerful government banks in the world. The initial formation of the European Union led to 12 European countries agreeing on a single, common monetary policy, as well as a single currency (the Euro) for these countries. In charge of the monetary policy for these countries, the European Central Bank serves a role similar to that of the Federal Reserve in the United States. For a website link and more information about this powerful bank, please click HERE.

The functions and tools of central banks of other countries are similar to those of the the Federal Reserve discussed in this unit.